Why The Advertising Work Process Is Really A Financial Asset

Agency executives are quick to blame all their money problems on procurement executives squeezing the agency. But it's a lot more complicated than that.

Procurement came late into agency relationships and, tellingly, at the time when relationships were experiencing a major transition. The last two decades of the 20th century saw the gradual commoditization of agencies, fueled by the rise of holding companies. When procurement started training their eyes.

on advertising, they discovered a fairly undisciplined area with huge amounts of money and without the backing of solid data, measurement or ROI.

In the wake of tight environment created by the financial crisis and the ensuing recession, procurement was asked to pay particular attention to cost savings in advertising. While companies quickly transformed themselves and adopted a more efficient, leaner business model, agencies were slow to align and resisted the pressure to streamline.

That meant having frequent discussions about reduction in agency fee between procurement and agencies, sometimes leading to acrimonious disputes.

The focus on agency fee negotiations adopted by many clients has not always been the most productive way to optimize the client/agency relationship. For one, cuts to margins are often compensated with overstated staffing proposals. Fee reductions can result in de facto service levels and quality reductions, but not in improvements to efficiency or greater productivity.

Instead of boiling the financial relationship dialogue solely to compensation, agencies and clients should look at another, far more sizable, area of potential savings: the agency work process.

To boost their profitability, agencies make investments in people and technology, as well as in other businesses, through acquisitions. However, they often overlook the most substantial source of untapped savings: their own work process, whether the way that they are developing commercials, writing media plans or building website. It is a significant hidden financial asset.